One of the less well-publicised costs of the great rush towards Net Zero is the bureaucratic burden that it places upon the world of business and industry, groaning under the mountain of sustainability legislation that inevitably ensues. This is only to be expected, however, since history has proven that society is quite incapable of transformation without lining the pockets of an army of legislators, lawyers, auditors, consultants, sundry bureaucrats, and forums having a purpose known only to God. This phenomenon has already been adequately reported upon by Mark Hodgson, here, here and here, so there is really nothing for me to add. Except that I bring you an update in the form of both good news and bad news.

First, the good news: One of the many winged monkeys of climate change bureaucracy, the Task Force on Climate-Related Financial Disclosures (TCFD), has now been grounded. It had been responsible for burdening businesses with an extra level of financial reporting, requiring them to formally declare the level of financial risk to which climate change exposes them. But it exists no more. There is no grave upon which you may dance, but those inclined to gloating are invited to visit the TCFD website to read its obituary.

Now the bad news: The only reason that the TCFD has kicked the bucket, shuffled off its mortal coil, run down the curtain and joined the bleedin’ choir invisible, is because it was deemed to have achieved its purpose. Accordingly, it has now been replaced by something far worse in the form of the International Sustainability Standards Board (ISSB) and its two standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

Apparently, the ISSB is a spawn of Glasgow’s COP26, and was conceived “following strong market demand for its establishment”. According to the ISSB’s own website:

The ISSB is developing—in the public interest—standards that will result in a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.

The reality is that these two standards are just a re-hash of a previous set of so-called “market-led investor-focused reporting initiatives”, including those of the TCFD. As such, they are the culmination of years of work, finessing the art of bureaucratic paper-torture, guaranteed to crush the spirit of the most enterprising, market-led and investor-focused captains of industry. And, wouldn’t you know it, the UK government, never one to let slip its crown as world leaders in self-inflicted climate torture, has deigned it necessary to develop its own version of these standards: UK SRS S1 and UK SRS S2.

You might think that anyone looking at this from a risk management perspective would welcome the introduction of such standards. After all, it was the TCFD that introduced the idea of physical risk due to climate change, contrasting with transition risk arising from efforts to combat it. Surely, it is a good idea for an organisation to identify both types of risk so that it may make a global risk assessment; if the transitional risk is actually greater than the physical risk it is intended to address, then it makes no commercial sense to proceed with the transition. Given that this is the very sort of strategy required to deal with the “needs of investors and the financial markets”, why not welcome new standards for the reporting of such risks?

That may sound sensible but, in fact, there is nothing in these standards that comes anywhere near requiring a risk management strategy based upon a global risk calculation. How could there be, when the transition risk is a direct result of having to pursue goals that have been mandated “in the public interest”? All that remains is for the world of commerce and industry to get on with digging its own grave whilst constantly issuing formal progress reports on how well the whole self-harm project is proceeding. Yes, each organisation is expected to explain how the transition risk is being managed, but nowhere is it allowed to manage the risk by avoiding it in the first place. I think this is what the IPCC refers to as ‘choice architecture’.

But these standards go far beyond enabling the unconfined joy of wasting time and money on climate-related financial disclosure. The devil, as always, is in the detail. IFRS S2 speaks glibly of an organisation’s “business model and value chain”, explaining that financial disclosure should cover both. Given that the value chain is supposed to encompass the complete supply chain and the end users, one can only imagine the heartache confronting the poor sods charged with compiling the disclosure reports. Thankfully, there is salvation in clauses 19 and 20:

19. An entity [i.e. poor sod] need not provide quantitative information about the current or anticipated financial effects of a climate-related risk or opportunity if the entity determines that:

(a) those effects are not separately identifiable; or

(b) the level of measurement uncertainty involved in estimating those effects is so high that the resulting quantitative information would not be useful.

20. In addition, an entity need not provide quantitative information about the anticipated financial effects of a climate-related risk or opportunity if the entity does not have the skills, capabilities or resources to provide that quantitative information.

So that’s all right then. If I were that entity, I would be milking paragraphs 19 and 20 for all they were worth. Which just goes to show what a farce this particular breed of standards can be in practice.

Meanwhile, reality intrudes. Most of the climate-related risk to which organisations are exposed is caused by decisions made at government level; decisions that condemn the organisation to untenable energy costs, energy supply-related business continuity risk, investment exposures, and the prospect of a disappearing ‘value chain’. One can mitigate, but there is no amount of bureaucratic process that can have any effect on the threat level posed by a government divorced from reality. The pretence that standards such as IFRS S2 or its UK equivalent can do anything other than add to corporate misery just contributes to the self-delusion that fuels and invigorates most aspects of Net Zero. And why is any of this necessary anyway? It’s to address physical risk that exists only in the dubious analyses underpinning extreme weather event attribution studies.

And the worst thing is this: Despite the best efforts of the faithful to stoke up the fear, the climate change physical risks still feature very low down in the average organisation’s risk register. It’s just a shame I can’t say the same regarding transition risk.